Sometimes, do LO with probable dementia make up stories, as maybe a test? Or just plain bored?

My LO saw a book on the table and said that the hero pictured on the cover had recently been in the house walking around. The hero was a really nice guy, according to LO. No one who looked like this hero had ever been in the house.

Dad had a drawing of a dog that looked similar to the dog that he and Mom used to have. He insisted that he'd drawn the picture. He hadn't. It was signed by the artist and he'd bought it at a shop.

Rude Aunt believes that Dad has been appearing to her in dreams and instructing her that she should never allow anyone else to get his business. Unfortunately, he's dead, and long before he died, he planned for continuation of his business, which didn't include her (which irked her to the point of having these dreams and talking about them to everyone - if she even had the dreams and wasn't confabulating the whole thing).

Another person I know has personal knowledge that her husband was inhabited by a demon when he was five. She wants others to believe it too.

Oh, dementia patients can come up with some stories, all right.....

Anxietynacy, of course someone with a broken brain will make up stories. And not because they're testing anyone or bored but because their brains are broken.
You say in your response to Alva below that you are educating yourself about dementia, but with some of the questions you have, I have to question just what exactly are you reading or watching, as you don't seem to be grasping what having a broken brain means.
May I suggest just one book that pretty much explains it all and will help you better understand dementia, and that is the book The 36 Hour Day by Nancy L. Mace and Peter V. Rabins.
If you don't understand dementia after reading that book you never will.

My father insisted Mike Pence (VP at the time) came to visit him at his AL and my father told him all about his service in WW2. Now my father did in fact have this conversation with someone famous (Harry Truman) but it was back in the 1950s or 60s.

Our local AL/MC is run by doctors. When I worked for the VNA this facility had seminars andvthe nurses were invited and I tagged along. One was on ALZ. Maybe you could call around and see if ur local ALs or even nursing homes have anything like. If you have a nursing school nearby, maybe ask there.

They believe the stories, no matter how fantastical and you can no longer reason with them, even presenting proofs. You don't have to stew with her while she is bent on discussing a fantastical or negative or morbid thing.

Next time if redirection doesn't work, open YouTube on your phone and show her funny animal or people videos. If that fails, literally walk away. I know this doesn't feel good but when your time gets drained by untrue, pointless stories every day, several times a day, this may become the only solution. It's what i do with my Mom when she goes into paranoid rants about my well-loved cousin. I just can't suffer it.

Oops, maybe not Elvis as a Guardian Angel. Long ago my friend, "Cynthia," age 14, who was truly one of the most beautiful girls I've ever seen, went to an Elvis concert at a movie theater in our home town. He mingled in the lobby afterwards, and the girls gathered around. He singled Cynthia out, forcefully grabbed her and kissed her. He stuck his tongue halfway down her throat before she pulled loose. She was shocked, since she'd never heard of this kind of kiss. After she told friends about it at school, the principal called her into his office and initiated a fatherly talk to explain that this man had taken advantage of her and that she shouldn't allow that sort of thing (even though she was actually powerless to stop it under the circumstances). Her own father was deceased, so she appreciated the guidance. She was a very mature looking girl at that age, and she resembled Priscilla. Interesting, no?

Please consider getting some education about Alzheimer's. There is a wealth of information online.
While "confabulation" is common with patients with any mental deficit (as well as the general public at large, in fact), it is rare that things are "purposely" made up.

The brain of an Alzheimer's patient is confused. There is no intention to mislead you.

My Mom Made up stories about seeing Elvis in concert . I had never heard these stories before . My son gave me a Look " Like is this true ? " Well she saw Elvis a Lot and then the Beatles and I Guess Elvis Brought her comfort . I Like to think Elvis was her Guardian Angel .